Outstanding student loan debt exceeds $1.6 trillion and is owed by about 45 million borrowers.¹ Currently, some federal student loan repayment and loan forgiveness programs provide targeted relief to individuals for fulfilling employment service requirements or following prolonged periods when a borrower's student loan debt burden is high compared to their income.² However, policies that would provide for broader scale student loan debt relief—including cancellation of all student loan debt—have gained considerable attention in recent years.³ Proposals in Congress⁴ and varied stakeholders⁵ have called for providing varying degrees of large-scale student loan debt cancellation to borrowers.

Should Congress explore providing student loan debt cancellation benefits that are broader in scale than what is currently available, several policy considerations may arise. This report discusses some of those considerations. It begins with an overview of the various student loan programs authorized and operated by the federal government and defines student loan cancellation as the term is used throughout the report. It then presents data on student loan borrowers and their characteristics. These data are followed by a presentation of recent existing research on the potential effects on borrowers of varied loan cancellation proposals and original analyses to complement the existing research. The final sections of the report discuss how widely available student loan debt relief may affect major stakeholders in the federal student loan programs. Key themes explored include the implications of varied loan cancellation policies for

• individual borrowers, such as potential effects on borrowers' loan repayment burdens, personal finances, and potential for future student loan borrowing;
• the federal government, such as potential costs associated with cancellation, impact on the existing federal student loan programs, and issues that may arise in administering a loan cancellation benefit; and
• institutions of higher education, such as effects on federal institutional accountability metrics, the postsecondary education marketplace, and institutional finances.

Some policymakers, advocates, and academics assert that the Secretary of Education has existing statutory authorities to grant broad student loan debt relief, including total debt cancellation on federal student loans made under Title IV of the Higher Education Act (HEA; P.L. 89-329, as amended).⁶ This report does not analyze that claim.

Federal Student Loan Programs

The federal government operates several student loan programs to assist students and their families in financing the cost of postsecondary education. Upon borrowing a federal student loan, a borrower assumes a contractual obligation to use the loan proceeds to pay for postsecondary educational expenses and to repay the loan, with interest, according to specified repayment plans, whose repayment periods may span a decade or more. Federal student loans often contain a number of borrower benefits (e.g., interest subsidies, flexible repayment options) that are not typically available to borrowers of non-federal student loans. These federal student loan programs are the primary source of student loan borrowing;⁷ thus, they are often the target of large-scale student loan debt relief proposals. As such, this report focuses only on federal student loan programs in discussing student loan debt relief options and does not consider options for debt relief of private education loans.⁸

The primary federal student loan program currently in operation is the William D. Ford Federal Direct Loan (Direct Loan) program, which is authorized under HEA Title IV, Part D. Under this program, the federal government makes loans using federal capital (i.e., funds from the U.S. Treasury), and once made, outstanding loans constitute an asset of the federal government.⁹ The U.S. Department of Education (ED), holds all Direct Loan program loans and is responsible for administering the program. Many day-to-day administrative functions are fulfilled by contracted loan servicers and private collection agencies.¹⁰

Several smaller federal loan programs also exist:

• Federal Family Education Loans (FFEL): This program is authorized under HEA Title IV. While new loans are no longer authorized to be made under the program, previously borrowed loans remain outstanding and borrowers remain responsible for repaying them. These loans were made with private (i.e., nonfederal) capital and the federal government guarantees them against loss due to borrower default, death, permanent disability, and, in limited circumstances, bankruptcy. Loans may be held by private lenders,¹¹ guaranty agencies (GAs), or ED. Private lenders, GAs, or ED (and its contractors) may be responsible for administering various day-to-day aspects of the program, depending on which of them holds the loan.¹²
• Perkins Loans: This program is authorized under HEA Title IV. While new loans are no longer authorized to be made under the program, previously borrowed loans remain outstanding and borrowers remain responsible for repaying them. These loans were made with a combination of capital from the federal government and IHEs. Loans may be held by IHEs or ED. IHEs or ED (and its contractors) may be responsible for administering various day-to-day aspects of the program, depending on which of them holds the loan.¹³
• Public Health Service Act (PHSA) Active Loan Programs: These programs are authorized under Titles VII and VIII of PHSA and include (1) Health Professions Student Loans, (2) Loans for Disadvantaged Students, (3) Primary Care Loans, (4) Nursing Student Loans, and (5) Nurse Faculty Loan Program loans. Loans under these five programs are made with a combination of capital from the federal government and IHEs and are held by IHEs. IHEs are responsible for administering the day-to-day aspects of the program.¹⁴
• Health Education Assistance Loans (HEAL): This program is authorized under PHSA. While new loans are no longer authorized to be made under the program, previously borrowed loans remain outstanding and borrowers remain responsible for repaying them. These loans were made with private (i.e., nonfederal) capital, and the federal government guarantees them against loss due to borrower default, death, permanent disability, and, in limited circumstances, bankruptcy. Loans may be held by private lenders¹⁵ or ED. Private lenders or ED (and its contractors) may be responsible for administering various day-to-day aspects of the program, depending on which of them holds the loan.¹⁶

Due to differing data collection systems across the programs described above, estimates of the total amount of outstanding student loan debt and number of unique individuals with outstanding federal student loan debt are imprecise. Table 1 provides summary information and data on each of these federal student loans programs.

Defining Student Loan Cancellation

Broad-scale student loan relief proposals range from providing short-term relief to borrowers in specific circumstances¹⁷ to cancelling a borrower's entire liability on outstanding student loans regardless of the borrower's financial circumstances or other characteristics.¹⁸ This report focuses on student loan debt cancellation policies. Neither the HEA nor PHSA specifically define cancellation in the context of the student loan programs.

For the purposes of this report, student loan cancellation is defined as the permanent elimination of a borrower's responsibility to repay all or a portion of their outstanding student loan debt. Under current law, loan cancellation is available to borrowers as loan discharge, which is typically available based on a borrower's hardship (e.g., total and permanent disability, bankruptcy), and as loan forgiveness, which is typically available through a borrower completing employment service or meeting other requirements. Some recent policy proposals that invoke loan cancellation would eliminate borrower debt more broadly regardless of borrower characteristics.

For those federal student loans not held by the federal government (e.g., FFEL program loans held by private lenders), a potential mechanism to effectuate similar debt relief for borrowers may be for the federal government to pay funds directly to the loan holder, either in a lump sum or in increments (e.g., monthly) on behalf of the borrower. This transfer of funds from the federal government to a loan holder on behalf of a borrower may sometimes be referred to as repayment or payment on behalf of the borrower. While from a borrower's perspective the ultimate result may be the same whether the debt is cancelled by the loan holder or repaid by the government (i.e., elimination of their responsibility to repay all or a portion of the debt), there may be important distinctions between cancellation and repayment from the perspective of the federal government and other stakeholders. Throughout this report, loan cancellation includes borrower relief through this mechanism of the federal government's payment on behalf of the borrower, unless otherwise specified.

As an alternative to broadly cancelling student loan debt, Congress could also consider amending the federal Bankruptcy Code¹⁹ to make it easier for individual borrowers to discharge their student loans in bankruptcy. Under current law, a debtor generally may not discharge a student loan in bankruptcy except in limited circumstances.²⁰ Bills have periodically been introduced in Congress proposing to provide relief to student loan borrowers by expanding the circumstances in which a borrower may discharge their student loans in bankruptcy.²¹ This report does not analyze this issue (it is analyzed in depth in CRS Report R45113, Bankruptcy and Student Loans).

The Student Loan Borrower Population

In general, roughly 63% of the U.S. population over the age of 25 enrolls in some form of postsecondary education at some point in their life. A subset of those individuals borrows federal student loans to finance their own postsecondary education. In addition, parents may borrow loans to help finance the postsecondary education of their dependent children.²² Some individuals who borrow federal student loans repay those loans in full within a relatively short period, while others maintain student loan debt for an extended period of time. Thus, a policy to broadly cancel all or a portion of federal student loan debt would directly apply to a discrete segment of the U.S. population aged 18 or older (approximately 17%).²³ Data on segments of the U.S. population who attend college and who borrow for postsecondary education may help to clarify which populations may be affected by various student loan cancellation policies. The following section presents data on postsecondary education attainment rates among the broader U.S. population and then presents data on characteristics of individuals who incur federal student loan debt. The text box below presents a summary of the data.

Postsecondary Education Attainment Rates

Among the U.S. population over age 25 in 2020, about 9% had no high school diploma or equivalent, 28% had at most attained a high school diploma or equivalent, 15% had enrolled in some college without completing a degree (this may include individuals who completed an undergraduate certificate²⁸), and 48% completed an associate's degree or higher.²⁹

Figure 1 presents estimates, based on the U.S. Census Bureau's and Bureau of Labor Statistics' 2020 Current Population Survey (CPS) data, of educational attainment among the broader population over age 25 by race or ethnicity. Among other trends, these estimates suggest that Asian individuals were more likely to complete a college degree relative to individuals who identify as other races or ethnicities. Hispanic individuals were less likely to have enrolled in postsecondary education when compared to individuals from other race or ethnicity categories.

Figure 1. Educational Attainment of the U.S. Population Over Age 25 in 2020, by Race or Ethnicity

Source: CRS analysis of Integrated Public Use Microdata Series, Current Population Survey: Version 8.0. Notes: Race categories do not include individuals who identified as Hispanic. For example, if an individual identified as Black race and Hispanic ethnicity, they would be counted as Hispanic and not Black for the purposes of these estimates.

Figure 2 presents estimates of educational attainment by household income. It shows that individuals at the higher end of the income distribution were more likely to have a college degree, while individuals at the lower end of the income distribution were less likely to have enrolled in postsecondary education at all.

Figure 2. Educational Attainment of the U.S. Population Over Age 25 in 2020, by Household Income

Source: CRS analysis of Integrated Public Use Microdata Series, Current Population Survey: Version 8.0. Notes: This figure displays the distribution of educational attainment levels within each income quintile. Measures of income include income received in the previous calendar year from wages and salaries and income sourced from federal benefits and other forms of public assistance, among other things.

Federal Student Loan Borrowing

A subset of individuals who enroll in postsecondary education borrow federal student loans to finance their postsecondary education. In addition, under the FFEL and Direct Loan programs, parents may have borrowed PLUS Loans on behalf of their dependent undergraduate students (Parent PLUS Loans) to help finance the cost of an undergraduate student's education. Thus, a policy to cancel all or a portion of federal student loan debt necessarily applies only to a subpopulation of college-going individuals and, in limited circumstances, their parents.³⁰ The figures that follow present estimates of student loan borrowing under the HEA Title IV student loan programs (the primary sources of federal student loans) for students who completed an undergraduate or graduate degree or certificate in AY2015-2016. Because the following figures examine student loan borrowing of individuals for their own education and not on behalf of another, they exclude amounts borrowed for Parent PLUS Loans. Recent calls for federal student loan cancellation have generally focused on varying amounts of cancellation (e.g., $10,000 or $50,000).³¹ As a result, these figures present estimates for varying debt size categories: (1) $1-$10,000; (2) $10,001-$50,000; and (3) over $50,000. In cases where percentages are presented, estimates for individuals who did not borrow any Title IV student loans are also included.

The below figures were derived using the 2015-2016 National Postsecondary Student Aid Study (NPSAS:16) from ED's National Center for Education Statistics (NCES). This nationally representative cross-sectional study of undergraduate and graduate students enrolled in postsecondary education in AY2015-2016 examines the characteristics of such students, with a focus on how they finance their postsecondary education.³² Federal student loan data for the large majority of the survey sample were obtained from the National Student Loan Data System (NSLDS), ED's central student-level database for tracking Title IV aid, including student loans.³³ The NPSAS:16 sample includes public IHEs and private IHEs (both for-profit and nonprofit) and spans less-than-two-year IHEs to four-year IHEs.

Undergraduate and Graduate Student Borrowing

Nearly 60% of individuals who completed an undergraduate certificate or degree in AY2015-2016 borrowed Title IV loans for their education.³⁴ More specifically, 16% borrowed between $1 and $10,000; 40% borrowed between $10,001 and $50,000; and 4% borrowed over $50,000. Less than 1% borrowed over $60,000. The median cumulative amount borrowed by these individuals was $20,020. The distribution of federal loan amounts borrowed by undergraduate program completers is depicted in Figure 3.

Figure 3. HEA Title IV Loan Amounts Borrowed through June 2016 by Individuals Who Completed an Undergraduate Certificate or Degree in AY2015-2016

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: Includes cumulative amounts borrowed for undergraduate education through June 30, 2016, in Subsidized and Unsubsidized Loans under the Direct and FFEL programs, and Perkins Loans. Excludes amounts borrowed for PLUS Loans by parents of dependent undergraduate students. The figure reflects, but does not show, the 40% of individuals who did not borrow any Title IV student loan. Each bar represents an increment of $1,000 (e.g., $1 to $1,000), and each label on the x-axis reflects the upper limit of such range. Data presented, reflect cumulative borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them.

Sixty-five percent of individuals who completed a graduate certificate or degree in AY2015-2016 borrowed Title IV loans for their undergraduate or graduate education, but in contrast to undergraduate borrowing, significantly more individuals who completed a graduate certificate or degree borrowed amounts of greater than $50,000. Six percent borrowed between $1 and $10,000; 26% borrowed between $10,001 and $50,000; and 33% borrowed over $50,000. Approximately 3% borrowed over $200,000. The median cumulative amount borrowed by these individuals was $50,872. The distribution of Title IV loan amounts borrowed by graduate program completers is depicted in Figure 4.

Figure 4. HEA Title IV Loan Amounts Borrowed through June 2016 by Individuals Who Completed a Graduate Certificate or Degree in AY2015-2016

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: Includes cumulative amounts borrowed for undergraduate education or graduate education through June 30, 2016, in Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. Excludes amounts borrowed for PLUS Loans by parents of dependent undergraduate students. The figure reflects, but does not show, the 35% of individuals who did not borrow any Title IV student loan. Each bar represents an increment of $5,000 (e.g., $1 to $5,000), and each label on the x-axis reflects the upper limit of such range. The estimates of the 10 bars spanning from $155,000 through $200,000 have standard errors greater than 30% of the estimates. These estimates should be viewed and interpreted with caution. Data presented reflect cumulative borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them.

Some of the policy discourse has focused on potential disparities among borrowing levels across race and ethnicity groups. Figure 5 presents the percentages disaggregated by race or ethnicity of (1) individuals who completed an undergraduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate education, and (2) individuals who completed a graduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate or graduate education. These estimates of both undergraduate and graduate borrowing suggest that at both levels of study Asian students were less likely to borrow Title IV student loans relative to students from other racial or ethnic categories. At the undergraduate level, Hispanic students were also less likely to borrow than other groups. Black students, at the undergraduate and graduate levels, were more likely to borrow larger amounts of Title IV student loans relative to students from other racial or ethnic categories.

For estimates of median Title IV student loan amounts borrowed in AY2015-2016 by undergraduate and graduate certificate or degree completers disaggregated by race or ethnicity, see Table A-1 and Table A-2, respectively.

Figure 5. Percentage of Individuals Who Borrowed Title IV Student Loans and Completed an Undergraduate or Graduate Certificate or Degree in AY2015-2016, by Cumulative Amount Borrowed and Race or Ethnicity

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: For undergraduate students, Title IV loans include cumulative amounts borrowed for undergraduate education through June 30, 2016, in Subsidized and Unsubsidized Loans under the Direct and FFEL programs, and Perkins Loans. For graduate students, Title IV loans include cumulative amounts borrowed for undergraduate or graduate education through June 30, 2016, in Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. Title IV loans for both undergraduate and graduate students exclude amounts borrowed for PLUS Loans by parents of dependent undergraduate students. For undergraduate students, standard errors related to estimates of the percentages of American Indian or Alaska Native and Native Hawaiian/Other Pacific Islander individuals who borrowed more than $50,000 in Title IV student loans are 33% and 30%, respectively. These estimates should be viewed and interpreted with caution. For graduate students, estimates related to American Indian or Alaska Native and Native Hawaiian/Other Pacific Islander individuals are generally not reliable and should be viewed and interpreted with considerable caution. There are too few observations within either group to generate reliable estimates of the percentages of individuals who borrowed between $1 and $10,000 or who borrowed between $10,001 and $50,000, which is indicated by "Estimate Unavailable." This does not mean that those percentages are zero. The estimate of the percentage of Native Hawaiian/Other Pacific Islander who borrowed more than $50,000 is also unreliable. Standard errors related to percentage estimates for the other debt size categories range from 33% to 38% for American Indian and Alaska Native individuals and is 35% for Native Hawaiian and Other Pacific Islander individuals who did not borrow. Standard errors related to percentage estimates for multi-racial individuals who borrowed between $1 and $10,000 or who borrowed between $10,001 and $50,000 are 34% and 44%, respectively. These estimates should also be viewed and interpreted with caution. Percentage totals across rows may not always add to 100% due to rounding or unavailable estimates. Data presented reflect borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them.

Figure 6 presents the percentages disaggregated by 2014 income (see Figure 6 notes) of (1) individuals who completed an undergraduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate education and (2) individuals who completed a graduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate and/or graduate education.

For undergraduate borrowing, estimates suggest fewer differences when compared to borrowing by race or ethnicity. Dependent undergraduate students from the highest end of the income distribution were less likely to borrow any federal student loans for undergraduate education and, to the extent that they did borrow, were also less likely to borrow Title IV student loans in amounts greater than $50,000. Independent undergraduate students from the highest and lowest ends of the income distribution were about equally as likely to borrow any federal student loans for their undergraduate education, but those from the higher end of the income distribution were more likely to borrow Title IV student loans in amounts greater than $50,000. For graduate borrowing, students from the lowest end of the income distribution were less likely to borrow any federal student loans for undergraduate or graduate education, but if they did borrow federal student loans, they were more likely to borrow in amounts greater than $50,000.

For estimates of median Title IV student loan amounts borrowed in AY2015-2016 by undergraduate and graduate certificate or degree completers disaggregated by 2014 income, see Table A-1 and Table A-2, respectively.

Figure 6. Percentage of Individuals Who Borrowed Title IV Student Loans and Completed an Undergraduate or Graduate Certificate or Degree in AY2015-2016, By Cumulative Amount Borrowed and 2014 Income

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: For undergraduate students, Title IV loans include cumulative amounts borrowed for undergraduate education through June 30, 2016, in Subsidized and Unsubsidized Loans under the Direct and FFEL programs, and Perkins Loans. For graduate students, Title IV loans include cumulative amounts borrowed for undergraduate or graduate education through June 30, 2016, in Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. Title IV loans for both undergraduate and graduate students exclude amounts borrowed for PLUS Loans by parents of dependent undergraduate students. 2014 income is defined as total income of parents of dependent students and total income of independent students and their spouses in 2014 for undergraduate students, and total income of students and their spouses in 2014 for graduate students. Income in 2014 was used to determine federal student aid eligibility in AY2015-2016. Income quintiles for dependent undergraduate student estimates are based on all such individuals who completed an undergraduate degree or certificate in AY2015-2016. The "Lowest 20 Percent" includes those individuals with incomes between $0 and $24,820; the "Lower Middle 20 Percent" includes those with incomes between $24,821 and $54,003; the "Middle 20 Percent" includes those with incomes between $54,004 and $87,124; the "Upper Middle 20 Percent" includes those with incomes between $87,125 and $132,727; and the "Highest 20 Percent" includes those with incomes of $132,728 or higher. Income quintiles for independent undergraduate student estimates are based on all such individuals who completed an undergraduate degree or certificate in AY2015-2016. The "Lowest 20 Percent" includes those individuals with incomes between $0 and $4,299; the "Lower Middle 20 Percent" includes those with incomes between $4,300 and $13,676; the "Middle 20 Percent" includes those with incomes between $13,677 and $25,061; the "Upper Middle 20 Percent" includes those with incomes between $25,062 and $50,547; and the "Highest 20 Percent" includes those with incomes of $50,548 or higher. Income quintiles for graduate student estimates are based on all individuals who completed a graduate degree or certificate in AY2015-2016. The "Lowest 20 Percent" includes those individuals with incomes between $0 and $4,493; the "Lower Middle 20 Percent" includes those with incomes between $4,494 and $19,233; the "Middle 20 Percent" includes those with incomes between $19,234 and $42,132; the "Upper Middle 20 Percent" includes those with incomes between $42,133 and $81,840; and the "Highest 20 Percent" includes those with incomes of $81,841 or higher. Percentage totals across rows may not always add to 100% due to rounding. Data presented reflect cumulative borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them.

Figure 7 presents percentages disaggregated by degree type of (1) individuals who completed an undergraduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate education, and (2) individuals who completed a graduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate or graduate education.

Regarding undergraduate borrowing, associate's degree recipients were considerably less likely to borrow any Title IV loans than students completing other certificate or degree programs. Students who attained an undergraduate certificate were more likely than degree completers to borrow Title IV student loans in amounts of up to $10,000, and bachelor's degree recipients were more likely to borrow Title IV student loans in amounts greater than $10,000.

For graduate students, those who attained a doctoral degree in a research or scholarship field were less likely to borrow any Title IV loans for their undergraduate or graduate education relative to other graduate degree type completers. Approximately 78% of students who obtained a professional practice doctoral degree (e.g., J.D., M.D) borrowed Title IV loans, and roughly two-thirds of these degree recipients borrowed more than $50,000 cumulatively across undergraduate and graduate studies. The rate of professional practice doctoral degree completers who borrowed more than $50,000 cumulatively is considerably higher than other graduate degree type completers. Still, nearly a third of master's degree recipients and research or scholarship doctoral degree recipients borrowed in amounts greater than $50,000 cumulatively to support undergraduate and graduate studies.

For estimates of Title IV student loan median amounts borrowed in AY2015-2016 by undergraduate and graduate certificate or degree completers disaggregated by undergraduate or graduate degree type, see Table A-1 and Table A-2, respectively.

Figure 7. Percentage of Individuals Who Borrowed Title IV Student Loans and Completed an Undergraduate or Graduate Certificate or Degree in AY2015-2016, by Cumulative Amount Borrowed and Undergraduate or Graduate Degree Type

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: For undergraduate students, Title IV loans include cumulative amounts borrowed for undergraduate education through June 30, 2016, in Subsidized and Unsubsidized Loans under the Direct and FFEL programs, and Perkins Loans. For graduate students, Title IV loans include cumulative amounts borrowed for undergraduate or graduate education through June 30, 2016, in Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. Title IV loans for both undergraduate and graduate students exclude amounts borrowed for PLUS Loans by parents of dependent undergraduate students. Percentage totals across rows may not always add to 100% due to rounding. Data presented reflect cumulative borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them. Also not presented are estimates for individuals who earned a doctoral degree that is classified as "other." There is no additional documentation regarding what is included in this category, which comprises 1% of all graduate respondents in the sample.

Figure 8 presents percentages disaggregated by institution type of (1) individuals who completed an undergraduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate education, and (2) individuals who completed a graduate certificate or degree in AY2015-2016 and borrowed Title IV student loans for their undergraduate or graduate education.

Relative to students who attended other institution types, students who attended less-than-four-year public institutions were less likely to borrow any Title IV loans and when they did borrow, they borrowed lower amounts. Additionally, compared to students attending other institution types, students who attended a private for-profit institution, for undergraduate or graduate education, were generally more likely to borrow Title IV loans and in higher amounts.

For estimates of Title IV student loan median amounts borrowed in AY2015-2016 by undergraduate and graduate certificate or degree completers disaggregated by institution type, see Table A-1 and Table A-2, respectively.

Figure 8. Percentage of Individuals Who Borrowed Title IV Student Loans and Completed an Undergraduate or Graduate Certificate or Degree in AY2015-2016, by Cumulative Amount Borrowed and Institution Type

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2015-2016 National Postsecondary Student Aid Study (NPSAS:16). Notes: For undergraduate students, Title IV loans include cumulative amounts borrowed for undergraduate education through June 30, 2016, in Subsidized and Unsubsidized Loans under the Direct and FFEL programs, and Perkins Loans. For graduate students, Title IV loans include cumulative amounts borrowed for undergraduate or graduate education through June 30, 2016, in Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. Title IV loans for both undergraduate and graduate students exclude amounts borrowed for PLUS Loans by parents of dependent undergraduate students. For undergraduate students, there were too few observations to produce an estimate of borrowing of over $50,000 at private nonprofit less-than-four-year institutions (as indicated by "Estimate Unavailable"). This does not mean that the percentage is zero. Percentage totals across rows may not always add to 100% due to rounding or unavailable estimates. Data presented reflect cumulative borrowing for program completers; no data are presented on borrowing among individuals who left programs prior to completing them.

Potential Effects on Borrowers

Differing policies to cancel federal student loan debt may affect varied aspects of a borrower's financial circumstances, including a borrower's monthly loan repayment burden, the opportunity for other major financial commitments (e.g., saving for retirement, buying a home), future student loan borrowing, and federal income tax liability. While some of these potential effects may reach across borrower populations generally, certain populations of borrowers may experience one or more of them more acutely than others. This section of the report explores the potential effects of a student loan cancellation policy on individual borrowers and on selected subpopulations. While widespread student loan debt cancellation may have broad macroeconomic effects as well, an examination of any such effects on borrowers and society at large is beyond the scope of this report.

Number of Borrowers Affected

A prevalent question surrounding proposals to broadly cancel federal student loan debt is–who would receive such benefits? Recent calls for federal student loan cancellation have focused on providing varying amounts of cancellation, such as up to $10,000 or $50,000, to borrowers regardless of their characteristics.³⁵ As of March 31, 2022, approximately 45 million borrowers owed $1.6 billion in federal student loans; 16% of those borrowers were 24 years old or younger, 64% were between 25 and 49, and 20% were 50 or older.³⁶

Table 2 presents information on outstanding Title IV student loan debt currently owed by borrowers, regardless of when they enrolled in school and borrowed Title IV loans. It shows the total number of borrowers and the total and average amounts of outstanding debt held by such borrowers for the following debt size categories: (1) $1 to $10,000; (2) $10,001 to $50,000; and (3) greater than $50,000.

While 20% of borrowers with existing Title IV student loan debt have outstanding balances of greater than $50,000, the total amount of debt held by these borrowers accounts for 63% of all outstanding Title IV student loan debt. If an across-the-board cancellation policy of up to $10,000 per borrower in Title IV student loan balances were implemented, then 15 million borrowers, or one-third of existing borrowers, would see their Title IV student loan debt completely eliminated. If an across-the-board cancellation policy of up to $50,000 were implemented, then an additional 21 million, or a total of 36 million borrowers (80%), would see their debt completely eliminated. Remaining borrowers would see their debt levels reduced.

Distributional Effects on Subgroups of Borrowers

One of the prevailing questions regarding various student loan cancellation policies concerns the distributional effects across subgroups of borrowers. The relative benefit of student loan cancellation to an individual borrower or to subgroups of borrowers may be defined in a variety of ways. For example, a borrower may experience a benefit in terms of total dollar amount cancelled, a reduction in monthly loan payments, or both. Alternatively, the benefit may be measured by changes in overall wealth and earning potential. Measuring the relative benefit of a particular policy may rest with understanding the relative ability of subgroups of borrowers to repay their federal student loans.

Distributional effect analyses of student loan cancellation policies by borrower characteristics such as race or ethnicity, income, and degree attainment may help shed light on the types of individuals who may experience student loan cancellation benefits and the nature of those benefits.

This section first provides a summary of findings from recently published studies that examine distributional effects and the allocation of benefits of particular student loan cancellation policy options. For example, some studies investigate the effect of student loan cancellation options on the actual dollar amount cancelled for individuals, while others explore effects on the changes in the racial-wealth gap among different subgroups. Most of these studies utilize the Federal Reserve Board's Survey of Consumer Finances (SCF), because administrative data on Title IV loans collected by ED do not include information on a borrower's race or ethnicity, and in most cases their income. A description of the SCF and its limitations is found in the text box below.

To offer relevant information from a different data source, this report also includes some CRS original analyses exploring variations in student loan repayment experiences at selected debt levels as another measure of the potential effects of canceling student loan debt under different policy options. These analyses utilize the NCES Beginning Postsecondary Student Longitudinal Survey (BPS), which follows individuals who began their postsecondary studies in a certain year.

Distributional Effects: Dollar Amount Cancelled and Savings in Annual Debt Service Payments

Some recently published studies and analyses investigate distributional effects, most of which suggest that middle- to high-income borrowers and borrowers with advanced degrees stand to receive the greatest dollar amount of debt cancellation, especially in the context of 100% across-the-board student loan cancellation, or even under a policy of up to $50,000 of across-the-board student loan cancellation. That these groups of student loan borrowers tend to hold larger shares of federal student loan debt drives that conclusion.³⁷

For instance, one study investigated a proposed policy of cancelling up to $50,000 in federal student loan debt for borrowers with household incomes of less than $250,000. Using data from the SCF, the study found that because the bulk of federal student loan debt is held by high-income households and borrowers with advanced degrees, those households would receive a higher share of the benefits (in terms of both total dollar amount cancelled and savings in annual loan payments) under such a policy. As an example, the highest 40% of households by income (within the income range studied) would receive 66% of all annual savings in debt service payments and borrowers with advanced degrees, who represent 27% of all borrowers, would receive 37% of annual savings.⁴⁰

Additionally, while these particular groups of student loan borrowers are more likely to hold greater shares of total federal student loan debt, they may not face a proportional hardship in repaying such high balances. This is because these groups of borrowers are more likely to have higher incomes and, thus, may be more able to pay down their debt.

Many low-income households are more likely to qualify for interest subsidies and zero- or low-dollar monthly payments under income-driven repayment plans.⁴¹ As such, a broad student loan cancellation policy may not result in the availability of substantial freed-up financial resources in the immediate term for such households due to their already low monthly payments.

Distributional Effects: Changes in Racial Wealth Gaps

Recent studies have suggested mixed evidence on the effects of student loan cancellation on racial wealth inequality. Using SCF data, one study found that a 100% across-the-board student loan cancellation would widen racial wealth gaps, as measured by the difference in median wealth between non-Hispanic White households and each minority household group, by 9% for Black households and 31% for Latino households. Reducing student loan debt by various amounts (e.g., 25%, 50%, or 75%), without limiting eligibility to certain incomes, contributed to increasing racial wealth gaps as well. At the same time, the study found that targeting student loan cancellation to low- and middle-income households could contribute to reducing racial wealth inequality.⁴²

When using a measure of wealth that includes future lifetime earnings from educational attainment (versus only face-value wealth), another study found that the contribution of student loans to racial wealth gaps is small, and that the impact of student loan forgiveness policies on reducing such gaps is uncertain.⁴³ In contrast, using SCF data, another study found that a policy of 100% across-the-board student loan debt cancellation, and to a lesser extent a policy to cancel up to $50,000 in federal student loan debt, for borrowers with household incomes of less than $250,000 would contribute to reducing White-Black wealth gaps across the wealth distribution, as measured by the ratio of White wealth to Black wealth at a given wealth quantile.⁴⁴

Distributional Effects: Ability to Repay Federal Student Loans

Another consideration in measuring the potential distributional effects of various student loan cancellation policies is the ability, or lack thereof, of borrowers to repay federal student loan debt, regardless of the debt size.

Some prior research on all student loans (both federal and nonfederal) investigates outcomes such as progress toward repaying loans, debt burden, and incidence of loan default as an approach toward measuring a borrower's ability to repay federal student loans. The two studies described below both leverage consumer credit panel data from different sources in their analyses.

The Consumer Financial Protection Bureau (CFPB) published a study in 2017 on student loan repayment trends using data from its Consumer Credit Panel (CFPB-CCP). The CFPB-CCP is a panel of de-identified credit records for a 2% nationally representative sample of individuals maintained by one of the top national credit bureaus. These credit records include information on both federal and nonfederal student loans such as the origination date; periods of deferment, repayment, delinquency, and default; payment amounts; and the balance throughout the life of the loan. The study found that 25%-30% of borrowers do not fully repay student loans within a 10-year repayment window across multiple repayment cohorts.⁴⁵ In terms of the "remaining balance ratio," which is defined as the "total outstanding balance at any point in time divided by the sum of reported principal at the start of repayment," the same study found that across multiple cohorts, (1) a large share of borrowers pay down their student loan balances over time, decreasing their balance ratios from 100% to 50% within several years of entering into repayment, eventually reaching zero within eight years⁴⁶; (2) about 23% of borrowers have a balance ratio of more than 50% eight years after entering into repayment; and (3) 6% of borrowers make very little progress paying down their balances and have balance ratios above 90% eight years after entering into repayment.⁴⁷ The report also found that borrowers with lower loan balances are more likely to pay off their loans faster than borrowers with higher balances.

Another analysis by the Federal Reserve Bank of New York (New York Fed Reserve) published in 2019 utilized its Consumer Credit Panel data (Fed Reserve-CCP), a panel of de-identified Equifax credit bureau records from a 5% nationally representative sample of individuals with a credit history. The Fed-Reserve-CCP includes information on federal and nonfederal student loans such as account balance, scheduled monthly payment, and loan performance. The analysis found that borrowers who completed school in 2005 repaid less than 40% of their balances within 10 years, and borrowers who completed school in 2010 repaid 9% of their balances within five years.⁴⁸ The analysis also found that while the highest income quartile of households held more student debt relative to other income quartiles, the average student loan debt-to-income ratio was highest for households in the lowest income quartile, over 20%. In addition, the report showed that default and delinquency rates decreased as household income increased.

The findings from these two analyses seem to suggest very different trends in student loan repayment outcomes and experiences, though it is not clear, as the New York Fed Reserve does not provide sufficient documentation of its methodology in arriving at some of the specific estimates mentioned above. One possible explanation could be in how the repayment cohorts for each analysis were constructed. In the CFPB study, assignment to a certain repayment cohort was based on "their last observed period of deferment to best proxy for when borrowers (or the student they borrowed on behalf of) leave school for the last time."⁴⁹ All loans disbursed to a borrower were assigned to the same repayment cohort, regardless of when the borrower entered into repayment on each individual loan. Many borrowers who had deferments, including those who attended graduate school or returned to their postsecondary studies at a later time, could have made payments on all or some of their loans for multiple years prior to leaving school or deferment "for the last time." This suggests that the point in time at which the study charts the start of repayment is when the borrower may be in a position to make greater progress on repaying their loans, and thus, leads to a finding of more positive repayment outcomes. Alternatively, while the New York Fed Reserve analysis defines its repayment cohort as individuals who graduated in a given year, it is unclear which individuals are captured by the term "graduate." For example, if graduate only refers to individuals who completed an undergraduate degree, then they may take out additional loans to pursue graduate studies and enter into repayment later, potentially leading to an interpretation of a slower progress toward repaying their increasing debt.

Original Analysis

For a complementary perspective on borrower experiences repaying debt, CRS original analyses were conducted using data from the Beginning Postsecondary Students Longitudinal Study (BPS) to examine measures of progress toward repayment of debt and hardship in repaying debt. These data, which are described in greater detail below, offer the ability to investigate outcomes for particular subgroups of borrowers including by race or ethnicity, income, and degree type, and by different debt sizes. One of the limitations of these data, however, is that the study follows only one cohort of students and at four points in time, which may limit the applicability of findings to the specific cohort in question and at those specified time periods. Nonetheless, these analyses may offer some insight into the varying degrees to which different student loan cancellation policies could be beneficial to all or particular subgroups of borrowers.

Data Source

Even though ED tracks Title IV loans awarded to students over their entire loan life cycle in the NSLDS, that comprehensive administrative dataset is limited in that it generally does not include information on borrower characteristics such as race or ethnicity and income or salary.⁵⁰ Thus, there are no administrative data to provide up-to-date information on the entire federal student loan portfolio disaggregated by race or ethnicity or income. However, survey data from BPS may provide a useful approximation of trends in federal student loan debt by various borrower characteristics at certain points in time and of differences across subgroups.

The BPS surveys a cohort of first-time, beginning students at three points in time: at the end of their first year in postsecondary education, and then three years and six years after beginning postsecondary education. It collects data on a variety of topics, including student demographic characteristics, school and work experiences, persistence, transferring, and degree attainment.

The BPS cohort with the data of most interest is the cohort that started postsecondary education in AY2003-2004 (BPS:04). In addition to the availability of data from the three-year (2006) and six-year (2009) follow-ups for the BPS:04 cohort, NCES also provides 12-year follow-up data in its 2015 Federal Student Aid Supplement, which is strictly based on available administrative data through the NSLDS. Thus, while the BPS:04 cohort does not represent the most recent BPS cohort for which data are available,⁵¹ more comprehensive measures of progress to repayment and repayment hardship and measures reflecting a longer time horizon are available within the BPS:04 dataset.

One limitation with using data for a cohort of borrowers who started postsecondary education nearly two decades ago is that they borrowed federal student loans under different conditions and circumstances than did more recent cohorts. For example, in AY2003-2004 the average cost of attendance (i.e., undergraduate tuition, fees, room, and board rates) for full-time students attending degree-granting postsecondary institutions was $12,953 ($17,905 in 2019-2020 dollars), compared to $25,281 in AY2019-2020.⁵² This could mean that fewer students may have borrowed for postsecondary education and at lower amounts in AY2003-2004 relative to students in AY2019-2020. Nonetheless, some of the indicators of borrowers' experiences repaying debt for the BPS:04 cohort were measured in 2015, representing a more recent time period. This may contribute to understanding the effects of various broad-based student loan cancellation policies, regardless of when individuals borrowed.

Estimates and Observations/Findings

CRS's analyses examined federal student loan data on measures of progress toward repayment and hardship in repaying debt (i.e., default) for students who began postsecondary education in AY2003-2004. The analyses included investigating the aforementioned outcomes by the following borrower characteristics:

• Race/ethnicity. These categories were based on the U.S. Census categories. Race categories are exclusive of individuals of Hispanic or Latino origin.
• Pre-enrollment income. Total income from the 2002 calendar year was used to determine federal student aid eligibility when a student began postsecondary education in AY2003-2004. The specific measure used for the analyses was parents' 2002 income, if the borrower was a dependent undergraduate student, and combined borrower and (if applicable) spousal 2002 income, if the borrower was an independent student when beginning postsecondary education in AY2003-2004. While salary information is available for 2009, it is not available for 2015.⁵³
• Degree type. This measure represents the borrower's highest level of degree attainment through June 2009, and includes (1) no degree, (2) an undergraduate certificate, (3) an associate's degree, or (4) a bachelor's degree.⁵⁴

Additionally, the analyses examined outcomes by the following federal student loan debt size categories: (1) $1-$10,000; (2) $10,001-$50,000; and (3) over $50,000. Depending on the particular measure, debt could be defined as the cumulative amount borrowed in Title IV student loans or the outstanding balance, in principal and interest, on Title IV student loans as of a certain year.⁵⁵ The applicable definition for each specific measure is noted below.

On average, an estimated 63% of students in this cohort borrowed over $26,000 in federal student loans for their undergraduate and/or graduate education. Seventy-five percent of those who borrowed were estimated to hold an average outstanding balance, in principal and interest, of over $32,000 on their federal student loans 12 years after starting postsecondary education.⁵⁶ Table A-3 presents selected descriptive statistics and estimates of federal student loan borrowing and debt for students who began postsecondary education in AY2003-2004. This information is disaggregated by borrower race or ethnicity, income, and degree type.

Some of the more noteworthy trends that emerged from the analysis of progress toward repayment and hardship in repayment of federal student loan debt are described in the following sections.

Progress Toward Repayment

The BPS:04 dataset includes a measure of progress toward repayment 12 years after beginning postsecondary education (2015 for the AY2003-2004 cohort), defined as the ratio, as of 2015, of the outstanding balance in principal and interest on federal student loans to the initial amount of the loans borrowed.⁵⁷

Figure 9 presents estimates of averages for this measure by borrower race or ethnicity, income, and degree type, regardless of debt size. The estimates exclude the 26% of borrowers who had fully repaid their debt on applicable federal student loans by 2015 and, therefore, had ratios of amounts still owed to amounts borrowed of zero.⁵⁸ Ratios of amounts still owed to amounts borrowed of greater than 100 indicate that borrowers had not paid down any of their outstanding federal student loan principal balance, and, in fact, their outstanding debt had grown within 12 years of beginning postsecondary education.⁵⁹

The data on the roughly three-quarters of borrowers who had not fully repaid their loans show that on average, regardless of debt size, these students who began postsecondary education in AY2003-2004, repaid 7% of their original outstanding debt within 12 years of the start of their postsecondary education experience.⁶⁰ The data also show the following:

• Black and American Indian borrowers made less progress toward repaying their debt compared with other subgroups; their debt was more likely to grow, relative to other race/ethnicity groups. The same was true for borrowers from the lower end of the income distribution.
• While Asian borrowers were more likely to borrow higher amounts in Title IV student loans relative to other racial and ethnic subgroups (see Table A-3), they also tended to make the greatest progress in repaying their debt—nearly a quarter of it—within 12 years. Similar patterns emerged for borrowers from the highest end of the income distribution and for bachelor's degree recipients when compared to other subgroups from within their respective categories.

Figure 9. Average Ratio of the Title IV Student Loan Outstanding Balance to the Initial Amount Received as of 2015 for Borrowers Who Began Postsecondary Education in AY2003-2004 and Whose Loans Are Not Paid Off By Race/Ethnicity, Income, and Degree Type

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2003-2004 Beginning Postsecondary Students Longitudinal Study, Second Follow-Up (BPS:04/09). Notes: Roughly 26% of borrowers in this cohort had their loans retired or forgiven, and are not depicted in this figure. Federal student loan amounts used in the measure depicted here include Subsidized and Unsubsidized Loans, and PLUS Loans to graduate and professional students, under the Direct and FFEL programs, and Perkins Loans. They exclude both PLUS Loans to parents on behalf of dependent undergraduate students and Consolidation Loans made under the Direct Loan and FFEL programs. The initial amount received is the amount the individual borrowed through 2015. Income is defined as total income of parents of dependent students and total income of independent students and their spouses in 2002, which is what was used to determine federal student aid eligibility in AY2003-2004. A student's dependency status in the measurement year (2015) could be different than the student's dependency status at the beginning of their postsecondary education (2003-2004). Quintile groupings are based on students who borrowed at least $1 in federal student loans as of 2015. For dependent undergraduate students, the "Lowest Quintile" includes those borrowers with incomes between $0 and $24,959; the "Lower Middle Quintile" includes those with incomes between $24,960 and $42,582; the "Middle Quintile" includes those with incomes between $42,583 and $63,676; the "Upper Middle Quintile" includes those with incomes between $63,677 and $90,838; and the "Highest Quintile" includes those with incomes at $90,839 or higher. For independent undergraduate students, the "Lowest Quintile" includes those borrowers with incomes between $0 and $5,000; the "Lower Middle Quintile" includes those with incomes between $5,001 and $11,608; the "Middle Quintile" includes those with incomes between $11,609 and $19,900; the "Upper Middle Quintile" includes those with incomes between $19,901 and $31,269; and the "Highest Quintile" includes those with incomes at $31,270 or higher. Degree type represents the highest level of degree attainment by the student through June 30, 2009. There are too few observations within the Native Hawaiian and Other Pacific Islander subgroup to generate a reliable estimate. This does not mean that the progress to repayment ratio is zero.

When factoring in the size of student loan debt, defined as the outstanding balance in principal and interest as of 2015, perhaps the most notable trend is that borrowers who still owed larger amounts of debt tended to have made little progress, on average, toward repaying debt; in fact, many had seen their outstanding debt increase. While no discernable differences across subgroups are generally apparent by debt size category, there are a few exceptions. Borrowers with a smaller amount of remaining student loan debt ($1-$10,000), had repaid, on average, 34% of their debt within 12 years of beginning postsecondary education. However, on average, certain subgroups—Black individuals, individuals from the lowest end of the income distribution, and individuals who completed an undergraduate certificate or did not attain a degree or credential—made less progress paying down smaller remaining amounts of student loan debt ($1-$10,000) by that time. For example, Black individuals with these smaller outstanding debt amounts had repaid about 8% of their debt within 12 years of beginning postsecondary education; the average amount borrowed by such Black individuals through 2015 was $6,415.

Hardship in Repaying Debt

A loan made through a Title IV student loan program is considered to be in default once the borrower has failed to make payments when due or has otherwise not adhered to the terms of the promissory note.⁶¹ The incidence of default on Title IV student loans may be viewed as an indicator of hardship in repaying debt. The BPS:04 dataset includes a measure of whether a borrower had ever defaulted on a Title IV student loan through 2015 (exclusive of PLUS Loans made to parents on behalf of dependent undergraduate students).

Figure 10 presents estimates of default rates by borrower race or ethnicity, income, and degree type as of 2015, regardless of debt size. On average, the default rate for all borrowers was nearly 30%. Some of the more notable trends include the following:

• Default rates were highest, nearly 50% for each group, among Black borrowers, independent undergraduate borrowers in all but the highest income quintile, and borrowers with undergraduate certificates.
• Default rates were lowest, under 15% for Asian borrowers, borrowers from the higher end of the dependent undergraduate student income distribution, and borrowers with bachelor's degrees.

Figure 10. Percentage of Borrowers Who Ever Defaulted on a Federal Student Loan as of 2015 for Students Who Began Postsecondary Education in AY2003-2004 By Race/Ethnicity, Income, and Degree Type

Source: CRS analysis of U.S. Department of Education, National Center for Education Statistics, 2003-2004 Beginning Postsecondary Students Longitudinal Study, Second Follow-Up (BPS:04/09). Notes: Estimates of default rates include loans made under the Direct Loan, FFEL, and Perkins Loan programs for undergraduate and graduate education. They do not include PLUS Loans made to parents on behalf of dependent undergraduate students. Income is defined as total income of parents of dependent students and total income of independent students and their spouses in 2002, which is what was used to determine federal student aid eligibility in AY2003-2004. A student's dependency status in the measurement year (2015) could be different than the student's dependency status at the beginning of their postsecondary education (2003-2004). Quintile groupings are based on students who borrowed at least $1 in federal student loans as of 2015. For dependent undergraduate students, the "Lowest Quintile" includes those borrowers with incomes between $0 and $24,959; the "Lower Middle Quintile" includes those with incomes between $24,960 and $42,582; the "Middle Quintile" includes those with incomes between $42,583 and $63,676; the "Upper Middle Quintile" includes those with incomes between $63,677 and $90,838; and the "Highest Quintile" includes those with incomes at $90,839 or higher. For independent undergraduate students, the "Lowest Quintile" includes those borrowers with incomes between $0 and $5,000; the "Lower Middle Quintile" includes those with incomes between $5,001 and $11,608; the "Middle Quintile" includes those with incomes between $11,609 and $19,900; the "Upper Middle Quintile" includes those with incomes between $19,901 and $31,269; and the "Highest Quintile" includes those with incomes at $31,270 or higher. Degree type represents the highest level of degree attainment by the student through June 30, 2009. There are too few observations within the Native Hawaiian and Other Pacific Islander subgroup to generate a reliable estimate. This does not mean that the true value of the default rate is zero.

When examining default incidence by debt size, as measured by outstanding balances in principal and interest on Title IV loans as of 2015, the aforementioned trends generally persisted for borrowers with balances of $1 to $10,000 and $10,001 to $50,000. For both debt size categories, default rates, on average, were roughly just over 30%. However, for both debt size categories, default rates were at or above about 50% for Black individuals, individuals from the lowest and upper middle quintiles of the independent undergraduate student income distribution, and individuals whose highest level of educational attainment was an undergraduate certificate.

While incidence of borrower default serves as an indicator of the ability or difficulty experienced by borrowers to repay their loans, it is not a direct indicator of budgetary cost to the federal government. Through a variety of tools to collect on or rehabilitate defaulted loans—including offset of certain federal benefits such as Social Security benefits, wage garnishment, and loan consolidation out of default—the government is able to recover a high proportion of defaulted debt.⁶²

Summary of Potential Findings

This original analysis of borrower experiences repaying Title IV student loan debt for the cohort that began postsecondary education in AY 2003-2004 identifies some trends that may inform student loan cancellation policy options.

With regard to degree type, bachelor's degree recipients seemed to perform better in repaying their debt relative to other undergraduate degree and certificate completers and noncompleters, while borrowers who earned an undergraduate certificate seemed to face the greatest hardship repaying their debt. In particular, undergraduate certificate completers who still owed up to $10,000 in debt as of 2015 made very little progress repaying their debt within 12 years of beginning their education. In addition, undergraduate certificate completers who still owed up to up to $50,000 in debt as of 2015 had substantially higher default rates relative to other degree completers and noncompleters.

When examining income level, borrowers from the highest end of the income distribution for both dependent and independent undergraduate students (as defined according to pre-enrollment income in 2002) performed better on measures of student loan repayment relative to the rest of the income distribution, while borrowers from the lowest end of income distribution fared comparatively poorly. On average, borrowers across the entire income distribution for independent undergraduate students saw their debt grow within 12 years of beginning postsecondary education; although borrowers at the highest end of such income distribution fared better, with the amount of their student loan debt remaining within 12 years of beginning postsecondary education almost equaling what they initially borrowed. Borrowers from the lower end of the income distribution for dependent undergraduate students also made less progress toward paying down their debt within 12 years of beginning postsecondary education relative to the rest of the income distribution. Unlike independent undergraduate students at the lower end of their income distribution, similarly situated dependent undergraduate students saw their debt balances decrease, on average, within 12 years of beginning postsecondary education; although, at debt levels of greater than $10,000, such borrowers saw their debt levels grow.

Regarding race or ethnicity, Black borrowers performed worse on both measures of repayment experience compared to other racial or ethnic subgroups. On average, Black borrowers saw their debt grow within 12 years of beginning postsecondary education, and at a debt level of up to $10,000, repaid 7% of their student loan debt. Black borrowers were also more likely to default on their Title IV loans relative to other racial or ethnic subgroups, and at debt levels of up to $50,000, had rates of default at or about 50%.

One possible explanation for some subgroups faring worse than others is that those particular groups had lower median incomes relative to the other subgroups, which may contribute to difficulties with student loan repayment.⁶³ In designing a federal student loan debt relief policy, Congress may consider whether to target debt relief in specific ways, such as based on income, amount still owed, and so on.

Effects on Individual Borrower Loan Repayment Burdens

Cancelling federal student loan debt, in whole or in part, would remove or lessen loan repayment burdens for qualifying borrowers. Depending on the amount of loan cancellation provided, some borrowers may have the full amount of their outstanding loans cancelled immediately. For others, if less than the full debt amount were cancelled, the overall dollar amount of loan payments made over the life of the loan would likely decrease and such borrowers may be able to pay off the remaining portion of their loan in a shorter period. However, such borrowers may not see immediate relief in terms of monthly payment obligations.⁶⁴ For example, under a policy of $10,000 in cancellation benefits, a borrower with $5,000 in outstanding student loan debt would experience full cancellation of their debt, which would result in an immediate termination of a borrower's monthly payment obligation. A borrower with $30,000 in outstanding loan debt would experience an immediate decrease of their total loan debt; thus, the overall dollar amount of loan payments made by the borrower over the loan's life may decrease and the borrower may be able to pay off the remaining portion of their loan in a shorter time period, but their monthly loan repayment obligation would not necessarily decrease unless the loan cancellation policy permitted reamortization.⁶⁵

For individuals with large amounts of outstanding interest, a cancellation benefit may be insufficient to cover all outstanding interest (depending on the amount of the benefit). If cancellation benefits were applied in a manner similar to loan repayments, where payments are applied to accrued interest and fees before principal, such borrowers would still be helped by this assistance but might not see a reduction in outstanding principal.⁶⁶ And for others, such as those already likely to benefit from an existing loan forgiveness benefit such as Public Service Loan Forgiveness (PSLF), the cancellation benefit may provide little meaningful relief (depending on the amount and timing of the benefit provided and individual circumstances).⁶⁷

For borrowers with multiple outstanding student loans, issues with how cancellation benefits should be applied across a borrower's loans may surface. For example, cancellation benefits could first be applied to any unsubsidized loans or to loans with the highest interest rate to help ensure that borrowers pay less interest over time. Alternatively, the benefits could be applied to enable borrowers to remain current on as many loans as possible.⁶⁸ Issues may also arise with how loan cancellation benefits should be applied on an individual loan.

Effects on Other Aspects of Borrowers' Personal Finances

Some observers have argued that student loan debt cancellation may enable some borrowers to make life decisions they may have otherwise been delaying or forgoing⁶⁹ due, at least in part, to their student loan repayment obligations.⁷⁰ Such life decisions may include starting a family,⁷¹ purchasing a home,⁷² or saving for retirement.⁷³

The extent to which loan cancelation might enable a borrower to make different life decisions in these types of areas would, of course, depend on a variety of circumstances. For example, whether a loan cancellation policy would enable a borrower to start a family or save for retirement would likely depend on a borrower's individual financial circumstances among other factors. While student loan cancellation may free up financial resources for some borrowers, in order to influence behavior the amounts forgiven would have to be substantial enough to facilitate undertaking other large financial obligations such as homeownership. Additionally, the extent to which a student loan cancellation policy would have a positive effect on a borrower's access to mortgage credit would depend on factors such as a mortgage lender's underwriting criteria⁷⁴ and whether the loan cancellation policy were structured such that a borrower's monthly student loan payments were reduced (e.g., their loan was reamortized). Because most mortgage lenders consider a borrower's monthly debt burden (including monthly student loan payments) in their underwriting criteria, a policy that does not reduce a borrower's monthly student loan payments may have a limited effect on a borrower's access to mortgage credit. In addition, depending on an individual borrower's circumstances, their consumer credit score may be negatively or positively impacted under a student loan cancellation policy, which may affect their access to financial products or opportunities (e.g., obtaining an automobile loan or credit card).⁷⁵

Effects on Future Student Loan Borrowing

Student loan cancellation, in full or in part, would result in some level of relief for eligible borrowers. Such relief may play a role in an individual's decision to borrow student loans in the future. For some individuals, the financial relief associated with debt cancellation may enable them to return to or continue their postsecondary education, as they could have greater current or future financial resources available to pursue education. In some cases, an individual may borrow additional federal student loans to finance their additional education.

It has also been suggested that providing broadly available student loan cancellation may result in a moral hazard for borrowers—if a current or prospective borrower believes that the federal government will cancel student loan debt, they may have less incentive to mitigate their risk associated with student loan borrowing.⁷⁶ For example, if the federal government were to implement a policy to broadly cancel outstanding federal student loans, an individual may borrow a larger amount of student loans or pay down debt more slowly in the future than they would otherwise—based on the expectation that the federal government may cancel loans again. On the other hand, a one-time policy of student loan debt cancellation with clearly articulated policy rationales tied to a specific set of circumstances at the time of implementation may go some way toward mitigating the likelihood of a resulting moral hazard.⁷⁷ In addition, aggregate borrowing limits associated with most of the federal student loan programs, especially for undergraduate students, may act as a limit on student loan borrowing. However, Direct PLUS Loans to parents and to graduate and professional students do not have aggregate borrowing limits.⁷⁸ Potential moral hazard may be mitigated by combining student loan debt cancellation with other policies to reduce the need for future borrowing to finance postsecondary education (see the "Operation of Existing Loan and Other Financial Aid Programs" section).

Federal Income Tax Implications for Borrowers

Under the Internal Revenue Code (IRC), borrowers whose debt is cancelled or repaid on their behalf must generally include the amount of the cancelled or repaid debt in income when determining their federal income tax liability.⁷⁹ The HEA and the IRC contain several statutory exceptions specifying that certain student loan cancellation and repayment benefits are to be excluded from taxable income. Prior to 2021, these exceptions included a borrower fulfilling certain service requirements or receiving certain statutorily specified loan discharges due to experiencing hardship. For example, under the HEA, borrowers of FFEL, Direct Loan, and Perkins Loan program loans whose loans are discharged due to a school's closure will not be subject to federal income taxes on the discharged amount.⁸⁰ Broad-based student loan debt cancellation under the policy options discussed in this report would result in debt reduction and, thus, a potential tax liability for a borrower. Provided that the debt would be cancelled pursuant to these proposals, borrowers may not qualify for the HEA or IRC exclusions described above.⁸¹

In March 2021, the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) amended the IRC to temporarily exclude most discharges of student loan debt from taxation. Specifically, ARPA excludes from gross income qualifying student loans (including those made under the federal student loan programs) discharged for almost any reason after December 31, 2020, and before January 1, 2026. Thus, if broad-based student loan debt cancellation occurring after December 31, 2020, and before January 1, 2026, is considered a discharge under the policy options discussed in this report, it would appear to be excluded from a borrower's gross income for federal income tax purposes. However, if broad-based student loan debt cancellation occurring after December 31, 2020, and before January 1, 2026, includes a payment on behalf of the borrower (as could be the case with regard to a student loan relief option for borrowers of federal education loans not held by the federal government), it may not fall under the ARPA exclusion from gross income.

In addition, eligible individuals can deduct up to $2,500 in student loan interest from their income, which generally reduces their federal income tax liability.⁸² The deduction amount is phased out for taxpayers with income between $70,000 and $85,000 ($140,000 and $170,000 for married joint filers) for 2021.⁸³ A broad-based student loan cancellation policy may result in some borrowers seeing the amount they can deduct for student loan interest decrease, which generally will increase what they owe in income taxes. However, in many cases, the savings from a student loan cancellation benefit would exceed an increase in the borrower's income tax bill.⁸⁴

Potential Effects on the Student Loan System and the Federal Government

Cancelling federal student loan debt, in full or in part, may have varying effects on the federal government in general and the federal student loan system in particular. For the federal government as a whole, a policy of cancelling a large swath of federal student loan debt may result in varying budgetary effects, depending on the precise loan cancellation policy implemented, but would ultimately result in significant costs to the government. Widespread student loan cancellation in large amounts (e.g., $50,000 per borrower) may raise fundamental questions about the role of student loans in the federal financial aid strategy, and loan cancellation in large or more modest amounts may raise significant questions about whether existing federal student loan and financial aid programs should be updated to more comprehensively address prevailing concerns about student loan borrowing and debt. In addition, various stakeholders have identified issues in administering currently available student loan forgiveness benefits, such as problems relating to loan services' disclosure and facilitation of enrollment in those programs and ED's fragmented and incomplete guidance to loan servicers regarding program implementation. Similar issues may arise in implementing a widespread student loan cancellation policy, which may result in uneven levels of success in implementing the benefit. If Congress considers passing measures to authorize widely available student loan cancellation, it may also concurrently consider amending existing federal student loan and financial aid programs further to more comprehensively address prevailing concerns about student loan borrowing and debt. In addition, providing widely available federal student loan cancellation benefits may have effects on the current array of federal student loan forgiveness and repayment programs designed to provide a financial incentive to encourage individuals to enter and remain in high-need occupations or public service.

Costs to the Federal Government

A policy to cancel some or all federal student debt would impose a significant cost for the federal budget. The exact cost to the federal government of a proposal to provide large-scale federal student loan debt cancellation would depend on numerous facets of the policy. The total amount of debt to be cancelled under a given policy would be a leading determinant of the cost to the government, but it is far from the only factor. While estimating the cost of any single proposal is the role of the Congressional Budget Office, this section of the report discusses the types of factors that could affect the cost of cancellation proposals.

Amount of Debt to Be Cancelled

The primary factor in determining the cost to the federal government of a federal student loan cancellation policy would be the amount of student debt to be cancelled. In general, a greater amount of debt cancellation would result in greater costs to the federal government.⁸⁵ Policy choices to define the pool of borrowers eligible for debt cancellation and the size of the benefit amount per borrower would establish the amount of debt eligible for cancellation. For instance, depending on the specific proposal, the pool of eligible borrowers might include the roughly 37 million Direct Loan borrowers, or it might additionally include the 5.6 million borrowers with FFEL program loans held by ED, the 4.5 million borrowers with commercially held FFEL program loans,⁸⁶ the 1.5 million borrowers with Perkins loans, or any combination thereof. Further, the amount of debt eligible for cancellation would vary significantly if the maximum benefit amount per borrower were set at $10,000, $50,000, or another specific amount, or if all of a borrower's debt would be cancelled.

While the total amount of debt cancelled would play a significant role in determining the cost of a particular policy to the federal government, the face value of the amount of debt cancelled would most likely not represent the total budgetary cost to the government. Other considerations, discussed in the following sections, may also shape the budgetary impact of a loan cancellation policy.

Mechanism of Cancellation

In addition to the amount of debt to be cancelled, the mechanism or mechanisms through which federal student loan debt would be cancelled may have an effect on the ultimate budgetary cost to the federal government. Loans held by nonfederal entities (e.g., commercial FFEL program loan holders, IHEs that hold Perkins Loan program loans, or loans made under the PHSA) may require different mechanisms through which to provide debt relief to borrowers than those used for loans held by the federal government. For instance, while the federal government could cancel a certain amount of federally held student loan debt similarly to how it has discharged or forgiven debt under existing programs, providing relief to borrowers with nonfederally held loans could take another form, such as the federal government making payments to nonfederal entities on behalf of borrowers or becoming the holder of such loans (e.g., through a refinancing program) and then subsequently cancelling some or all of the federally refinanced debt. These different options may have different budget implications.

Cancelling federal student loan debt held by the federal government would have budgetary implications with respect to both the amount of principal cancelled and the amount of interest forgone as a result. To the extent that student loan principal amounts are cancelled and future interest is not charged, such forgone revenue would be considered a budgetary cost.⁸⁷ Cancelling federally held student debt may have implications for administrative costs as well. While cancellation may result in a reduction of recurring administrative costs (e.g., loan servicing), there would likely be a near-term increase in administrative costs associated with the task of administering the loan cancellation itself.

For federally backed student loan debt that is not held by the federal government (e.g., commercially held FFEL program loans, Perkins Loans held by IHEs), Congress may consider an alternative mechanism for providing relief, such as by authorizing loan payments on behalf of borrowers to the nonfederal entities that hold the loans using federal funds. Such an initiative would be akin to currently existing loan repayment programs for borrowers.⁸⁸ The budgetary cost of such an approach would reflect the payments made on behalf of borrowers as well as administrative costs, potentially with a small offset to account for the government's decreased exposure for guaranteed loans.⁸⁹

As an alternative to making payments to nonfederal entities on behalf of borrowers, Congress may also consider a policy option in which the federal government refinances nonfederally held loans and subsequently cancels some or all of the newly refinanced debt. Under a refinancing and subsequent cancellation policy, individuals would borrow a federal student loan and use the proceeds to pay off (i.e., retire) their existing federal student loan obligations held by a nonfederal entity. The new federal student loan would be held by the federal government (e.g., ED) and may then be cancelled. ED currently operates a type of loan refinancing program—Direct Consolidation Loans⁹⁰—which may enable borrowers with federal student loans not held by ED to refinance these loans and thereby become eligible for a variety of loan cancellation benefits (e.g., Public Service Loan Forgiveness) for which they would not otherwise qualify.

If the federal government were to refinance and subsequently cancel some portion of formerly nonfederally held student loan debt, there may be several effects on the federal budget. For instance, refinancing loans may raise federal costs for administrative functions and servicing. By originating refinanced student loans, however, the federal government would possess potentially valuable assets with potential future cash flows (e.g., principal and interest payments), though the value of these assets may be reduced by costs associated with certain policies and loans statuses such as interest subsidies, flexible repayment plans, preexisting loan forgiveness programs, and projected borrower default. On the other hand, after the initial step of refinancing student loans, the federal government would incur a significant cost by cancelling some or all of the refinanced debt. The net budgetary impact, then, would depend on the terms and conditions of the refinanced loans and on the share of newly acquired debt being cancelled.

Mitigating Considerations

While the potential cost of a student debt cancellation policy may largely depend on the amount of debt to be cancelled and on the specific method of debt relief, there are additional considerations that may mitigate the budgetary cost of such factors. For instance, while the amount of debt to be cancelled is informative, the net present value of a loan is likely to be different from its outstanding balance.⁹¹ Relatedly, the budgetary value to the federal government of a certain amount of principal balance (e.g., $10,000) held by the federal government is likely to be different from its face value. The budgetary value of $10,000 of principal balance could potentially be greater than $10,000, such as when the government expects the $10,000 to be fully repaid along with interest that exceeds the applicable discount rate,⁹² or less than $10,000, such as when the government does not expect future principal and interest payments to net $10,000 in today's dollars. The latter scenario could materialize if, for instance, a borrower defaults, a borrower repays less than $10,000 due to enrollment in an IDR plan or eligibility for another loan forgiveness program, or the effective interest rate on the loan is lower than the applicable discount rate.

While not likely to be common, it is plausible that cancelling certain debt could potentially achieve budgetary savings for the federal government for some borrowers. For example, consider a borrower enrolled in an IDR plan whose income is sufficiently low that the required monthly payment is $0 for the entire term of the loan until the balance is forgiven. The cost to the government of maintaining the loan over its lifetime, such as compensation to the loan servicer, may exceed administrative expenses associated with cancelling the loan earlier in its term. As a result, the budgetary effect of cancellation may be net savings for the government for some borrowers.

A more common example may also illustrate how the budgetary cost of cancellation may be less than the face value of the cancelled debt. A borrower could make regular payments on their loan but eventually have some amount of debt forgiven even absent a broad loan cancellation policy due to the terms of an IDR plan or another loan forgiveness program such as PSLF, or to types of loan discharge such as discharge due to the borrower's death or total and permanent disability. While cancelling such a loan may not achieve budgetary savings for the federal government, the budgetary cost of cancellation would be the marginal cost of cancellation in comparison to the forgiveness or discharge that would have been granted in its absence.⁹³ For example, if a borrower is on track to receive full loan forgiveness in 2024 under PSLF, and instead has the whole debt cancelled under a blanket cancellation policy in 2023, the cost to the government of that policy would be the extra expense of the earlier cancellation (i.e., forgone principal and interest payments).

Impact of Costs

Given the finite nature of budgetary resources, a policy that increases net costs to the government necessarily requires tradeoffs to be made. For instance, to accommodate increased spending in one area, the government may decrease spending for other programs and priorities. Alternatively, Congress and the President could seek to increase tax revenue to offset the increased spending. Absent a reduction in other spending or an increase in revenue sufficient to offset the new spending, the government may engage in increased deficit spending, which shifts the fiscal burden for paying for the new spending from current taxpayers and program beneficiaries to future ones.

Additionally, it is plausible that a policy providing widespread student loan debt cancellation could have effects on the economy broadly, which may in turn have implications for other federal revenues or entitlement spending. Such considerations, however, are beyond the scope of this report.

Effects on the Underlying Student Loan and Other Financial Aid Programs

In addition to effects on the federal budget, broadly available student loan debt cancellation may have other effects on and implications for the federal government and the federal student loan system. These include implications for the continued operation of the federal student loan programs, the extent to which federal financial aid programs might be altered to address prevailing concerns about student loan borrowing and debt, and the potential effects on the current array of federal student loan forgiveness and repayment programs designed to provide a financial incentive to encourage individuals to enter and remain in high-need occupations or public service. Some policy considerations may arise only in scenarios in which a large amount of student loan debt is cancelled, while other considerations are more broadly applicable and may arise despite the scope of any cancellation benefit provided.

Operation of Existing Loan and Other Financial Aid Programs

A policy of widespread cancellation of large amounts of student loan debt (e.g., $50,000 per borrower) may raise fundamental questions about student loan policies and the role of student loans in the federal financial aid strategy. Cancelling a large portion of debt in the federal student loan programs, which is the government's primary tool to aid students and their families in paying for postsecondary education,⁹⁴ would potentially raise the question of whether federal student loans should remain the primary tool moving forward.

Alternative approaches to providing federal assistance for postsecondary education, such as relying more heavily on federal grant aid or moving toward a tuition- or debt-free aid model—which do not require as significant of investments in post-disbursement administration as the loan programs (e.g., loan servicing)—may be more streamlined. If there were ongoing interest in providing this level of support for college financing, and available resources to do so, Congress could reconsider the role of loans in the federal student aid approach.

If a widespread cancellation of large amounts of student loan debt was enacted as a one-time occurrence, varied equity concerns might arise about why existing borrowers are chosen to benefit from a cancellation policy that has not been made available to prior or future borrowers. More generally, a mass debt cancellation event may prompt questions about why finite federal resources should be expended for this purpose, to the exclusion of other federal assistance programs.

While a policy of cancelling student loan debt would decrease the current federal student loan portfolio by potentially significant amounts and would provide relief to at least some individuals with current outstanding student loan debt, absent congressional action, the various federal student loan programs would continue to operate, and individuals would continue to be eligible to borrow federal student loans to finance the cost of their postsecondary education. Factors that have been cited as contributing to the current amount of outstanding student loan debt or that may make repaying student loan debt difficult for some individuals would presumably still exist and may cause future borrowers to face similar issues. Such factors include, but are not limited to, increasing college prices,⁹⁵ the absence of aggregate borrowing limits on Direct PLUS Loans,⁹⁶ and the increasing availability and utilization of student loan repayment plans that allow borrowers to make monthly payments of less than the interest that accrues on their loans (negative amortization).⁹⁷

Should Congress consider authorizing widely available student loan cancellation, it may concurrently consider amending the federal student loan and financial aid programs to further address concerns about student loan borrowing. Such changes may help mitigate the need for future widely available loan cancellation policies. Policy options to address some of these suggested by advocates and stakeholders include proposals to provide debt-free⁹⁸ or tuition-free college;⁹⁹ double the amount of the maximum Pell Grant¹⁰⁰ available;¹⁰¹ limit the amount of student loans individuals may borrow, especially with respect to Direct PLUS Loans;¹⁰² and simplify and adjust the targeting of available loan repayment plans.¹⁰³

Loan Cancellation Benefits Administration

Implementing a policy through which the federal government cancels all or a portion of outstanding federal student loans may present administrative difficulties. Numerous issues with the administration and loan servicing environment of the largest federal student loan program—the Direct Loan program—have been previously identified. For example, the CFPB has identified problems relating to loan servicers' disclosure of and facilitation of enrollment in existing student loan forgiveness programs and breakdowns in customer service.¹⁰⁴ Loan servicers have reported receiving fragmented, incomplete, and untimely guidance from ED with respect to implementing existing loan forgiveness programs.¹⁰⁵ Similar issues may arise in implementing a widespread student loan cancellation policy, may cause confusion among borrowers and loan servicers, and may result in uneven levels of success in implementing a loan cancellation benefit.

Should a loan cancellation policy apply to all types of federal student loan programs, each of which involves varying entities tasked with administering them (e.g., ED and its contractors, IHEs, private lenders, GAs), additional issues may arise. One overarching issue may be the current fragmented nature of federal student loan program administration.¹⁰⁶ For example, each entity that administers aspects of a federal student loan program may have varying experience in administering the student loan forgiveness and repayment benefits that are currently available. Each entity may also have different infrastructures (e.g., information technology systems). Such disparate administrative arrangements may result in irregular or inefficient implementation of a loan cancellation benefit. The federal government, however, has experience in coordinating more narrowly tailored student loan cancellation benefits (e.g., ED has experience coordinating death and total and permanent disability discharge benefits across the Direct Loan, FFEL, and Perkins Loan programs and across all entities tasked with administering those loan programs). It may be relatively well positioned to coordinate a larger-scale cancellation benefit.

Existing Federal Student Loan Repayment and Forgiveness Programs

A policy of widespread cancellation of large amounts of student loan debt (e.g., $50,000 per borrower) may fundamentally change the operation of and need for the current federal framework of providing student loan repayment or forgiveness benefits for individuals completing many types of specified service. Currently, over 30 operational federal programs provide such benefits, many of which are designed to provide a financial incentive to encourage individuals to enter and remain in high-need occupations or public service.¹⁰⁷ Some may question the utility of or necessity for the ongoing existence of such programs in the wake of widespread student loan cancellation in large amounts.

In addition, there may be other noteworthy ways in which widespread student loan cancellation (in large or more modest amounts) could potentially either undermine or work in conjunction with this current federal framework. If borrowers' student loan debt burden were significantly lessened under a policy of broadly available student loan debt cancellation, some individuals may be less likely to enter and remain in professions and service deemed desirable by federal policymakers, as the financial incentive to do so could be reduced. On the other hand, some borrowers may be more likely to do so because they may be able to take lower paying jobs as a result of the financial burden associated with student debt being lessened.

For example, under the Teacher Loan Forgiveness (TLF) program, Direct Loan and FFEL program borrowers employed full-time for five consecutive years as a teacher in a low-income school or educational service agency may receive up to $5,000 of loan forgiveness in general, and up to $17,500 of loan forgiveness is available for special education teachers and secondary school math and science teachers.¹⁰⁸ The purpose of the program is "to encourage individuals to enter and continue in the teacher profession."¹⁰⁹ Depending on the amount and timing of the benefit provided and individual circumstances, loan cancellation may provide sufficient relief so as to render the TLF benefit irrelevant to some borrowers; thus, they may pursue employment in professions or endeavors outside of teaching. Conversely, a cancellation benefit may provide relief sooner than the TLF program, which could free up some individuals' personal financial resources and enable them to enter into lower paying jobs, such as teaching, when they would not have otherwise done so. For individuals with student loan debt amounts larger than the maximum TLF benefit, a loan cancellation policy may provide additional student loan debt relief benefits.

Potential Effects on Institutions of Higher Education

In addition to borrowers, the federal government, and the student loan system generally, IHEs may be impacted by federal student loan cancellation policies. IHEs could potentially feel the secondary effects of cancellation policies with respect to consumer demand for higher education and institutional accountability measures. Additionally, depending on the pool of student loans eligible for cancellation under a specific policy option, the balance sheets of IHEs that hold federally backed student loans may be directly affected by the cancellation policy.

Market for Postsecondary Education

As providers of a consumer service (i.e., postsecondary education), IHEs may potentially be affected by a change in consumer demand for higher education following widespread student loan debt cancellation. As discussed in the "Effects on Future Student Loan Borrowing" section above, some observers have suggested that a possible effect of such a policy could be that some borrowers who benefitted from debt cancellation may be more likely to return to or continue with postsecondary education. Similarly, more individuals may opt to pursue postsecondary education if they perceive debt cancellation as a likelihood in the future. Some have also argued that if individuals perceived they could receive student loan debt forgiveness in the future, they may be willing to pay more for their education and market conditions may enable IHEs to raise their prices.¹¹⁰

Institutional Accountability

A number of federal accountability and informational measures for IHEs concern the loan debt owed by students. A policy of broad federal student loan debt cancellation may impact or limit the usefulness of these measures.

Under the HEA, an institution's cohort default rate (CDR) generally measures the percentage of an IHE's FFEL and Direct Loan recipients¹¹¹ who enter into repayment in a given fiscal year and default within three years after entering repayment.¹¹² An IHE's eligibility to participate in the HEA Title IV student aid programs can be affected by high CDRs.¹¹³ For example, IHEs with CDRs of 30% or more for three consecutive years may lose eligibility to participate in the Direct Loan and Pell Grant programs for the fiscal year in which the determination is made and for the two succeeding fiscal years. This CDR is the primary federal institutional accountability mechanism tied to the performance of federal student loans.¹¹⁴

The student loan payment pause implemented in response to the COVID-19 pandemic will likely lower institutions' CDRs for the next several years, as most student loan borrowers are not required to make payments during this period and, thus, the likelihood of their defaulting on their student loans is minimal.¹¹⁵ Some have raised concerns that this payment pause will, therefore, diminish the usefulness of the CDR as an indicator of student borrower outcomes and as a means of holding IHEs accountable for those outcomes.¹¹⁶

A policy to broadly cancel at least some student debt may further diminish the usefulness of the CDR, as debt cancellation would likely reduce the number of defaults that would have otherwise occurred. As a result, some institutions that would have otherwise failed to meet the CDR requirements may satisfy them in light of student debt cancellation. This could potentially reduce pressure on such institutions to adopt changes aimed at reducing CDRs or revisit their default management plans.

Additionally, informational tools intended to help consumers make informed decisions about pursuing higher education, such as ED's College Scorecard, include data about the student loan debt of students who attended each IHE. Some measures, such as the median amount of student debt owed by borrowers at graduation, may not be affected by broad student debt cancellation.¹¹⁷ Others, such as the proportion of former students who currently owe less than they did upon entering repayment, would likely be significantly affected by widespread debt cancellation. As a result, the statistics presented to consumers may not accurately convey borrowers' ability to repay amounts borrowed or the amount of debt likely to be borrowed by future students, who would enroll and borrow after the debt cancellation had already occurred. This could diminish the value of federal informational tools such as the College Scorecard in helping prospective students make informed decisions about postsecondary education options.

Institutions as Loan Holders

Under the Perkins Loan program (authorized under the HEA) and Health Professions Student Loans, Loans for Disadvantaged Students, Primary Care Loans, Nursing Student Loans, and the Nurse Faculty Loan Program (all authorized under the PHSA), loans were made to students using a combination of capital from the federal government and from IHEs. In many cases, IHEs are the holders of these programs' loans. If loans made under these programs and held by IHEs were to be eligible for cancellation with reimbursement from the federal government—such as by having the federal government make payments on behalf of borrowers or by refinancing such loans into federal loans—IHEs that hold such loans could potentially be affected in a number of ways.

On the one hand, a prepayment of loan principal¹¹⁸ may result in IHEs receiving less income revenue from future interest payments, as interest would accrue on a smaller amount of principal. This may diminish the amount of interest revenue they may deposit into their revolving loan funds.¹¹⁹ For IHEs participating in the PHSA Loan programs, lower interest income may curtail their ability to make future program loans. For IHEs participating in the Perkins Loan program, lower interest income may curtail the amount of funds they may retain during the program's wind-down.¹²⁰

Nevertheless, IHEs may receive payments from the federal government for loans that would otherwise not have been paid in full by borrowers. The guaranteed repayment of a certain amount of principal could potentially mitigate the prepayment cost of forgone interest income.

Appendix. Selected Statistics on Student Loan Borrowers

Table A-1 and Table A-2 present median cumulative HEA Title IV amounts borrowed by undergraduate and graduate certificate and degree completers in AY2015-2016. Estimates are disaggregated by borrower race or ethnicity, pre-enrollment income, degree type attained, and type of institution attended. Estimates are also presented for three different borrowing amount categories: (1) $1 to $10,000; (2) $10,001 to $50,000; and (3) greater than $50,000. This information is intended to supplement student loan borrowing data presented in Figure 5, Figure 6, Figure 7, and Figure 8.

Table A-3 presents selected descriptive statistics and estimates of federal student loan borrowing and debt for students who began postsecondary education in AY2003-2004. This information is disaggregated by borrower race or ethnicity, income, and degree type. This information is used to illuminate the CRS analysis of distributional effects of student loan cancellation policies found in the "Distributional Effects on Subgroups of Borrowers" section.